Tax planning is the most important financial objective of a person. It starts from the time when an individual starts earning and is even till retirement. However, tax planning should be done earlier and that’s an effective way of our financial goals. Now, let’s look in detail at the top mistakes to be avoided in tax planning.
STARTING TAX PLANNING VERY LATE:
Most individuals tend to start the tax planning by the quarter of the year. This situation occurs until the employer asks them to submit under Section 80 C and other investments for TDS purposes. The last-minute rush by submitting your investments to the employer gives them a second thought. However, you know about your fixed salary, increment and bonus for the year. Hence, by analyzing this earlier, you can plan for tax planning in early April.
TAX PLANNING NOT LINKED TO YOUR FINANCIAL GOALS:
Most of the investors tend to save tax mechanically, which should not be the case. Tax planning is not all about Tax savings but also making you invest in appropriate schemes and meeting your financial goals. If you are planning for long-term financial goals, ELSS schemes suit the best among all the 80C investments.
As it mentions, locking up your liquidity amount for a longer term will not serve any purpose for your financial needs. Hence, before tax planning for savings, make sure you know the right plan to be invested, and in case of unforeseen circumstances, you can make use of it. Liquidity also needs to be considered when looking at tax savings.
LINKING LIFE INSURANCE NEEDS AND TAX PLANNING:
This is the most common myth which has been followed. Life insurance is one of the most needed ones for insuring our lives. However, mixing or linking with the tax savings might minimize your life cover that needs to be needed for the whole family.
Therefore, while planning for tax savings, avoiding such mistakes will help you plan effectively in terms of meeting your financial goals.